We all live in a “gee whiz” world of technological advances. New ideas come at us every day and the average consumer welcomes new technologies — such as VoIP telephone services — without giving a thought to the behind-the-scenes battles that made such technology available. But Voice over Internet Protocol (VoIP, also called “digital voice” or “digital phone”) is hardly ordinary. And as an attorney, you’re hardly an ordinary consumer.
So, here’s the legal tale of intrigue surrounding VoIP and the Eighth Circuit Court of Appeals: a prime example of what can happen when technology evolves faster than the laws that govern it.
First, here’s the background. VoIP debuted in 1995 at the hands of an Israeli company called VocalTec. It was the first to use the Internet’s data-oriented “packets” to transmit voice. VocalTec was smart, because the world market was already seeking an alternative architecture to the traditional Public Switched Telephone Network (PSTN), which lacked the ability to handle higher bandwidth applications, such as data and video.
VocalTec’s new system was not without its own problems, however. There were delays, disconnections, low voice quality and compatibility issues. Still, it was a major breakthrough.
An even bigger breakthrough came with the subsequent debut of “VoIP gateways,” which provide interface between PSTN and VoIP systems. These gateways control a phenomenon called “jitter” that delivers packets out of order, resulting in an unnatural sounding voice. With that problem solved, VoIP became a cost-effective alternative to old-fashioned phones, one that allowed companies to handle data and voice transmission within a single system and one that is infinitely scalable.
VoIP is a nomadic service, because calls can be made and received anywhere Internet services exist. The Federal Communications Commission (FCC) also asserted jurisdiction over nomadic VoIP service, because the FCC early on classified Internet service as interstate. By contrast, old-fashioned phone numbers are geographically specific, thus giving the state public utility commissions regulatory control over the intrastate aspects of PSTN systems. The conflict arose when some states decided that because VoIP service acted just like PSTN service, it should be regulated in the same way.
Enter Vonage
The name may be a little tricky to pronounce. But that’s nothing compared to the challenges posed by Vonage in states that took exception to FCC control over VoIP. The Minnesota Department of Commerce confronted the industry leader in 2003, alleging in its complaint to the Minnesota Public Utility Commission that Vonage was regulated as an intrastate phone service. The PUC found in favor of the state. Further, the PUC ordered Vonage to cease and desist until the company could meet state requirements.
But hold the phone. Vonage responded with a petition to the FCC that asked the federal government to preempt the Minnesota PUC’s ruling on two grounds. First, Vonage maintained that it was a provider of “information services” as opposed to being a “telecommunications carrier” as described by the Telecommunications Act.
And second, Vonage argued that it was covered by the “impossibility exception” of the Act — the FCC can preempt state regulations if it is impossible or impracticable to separate a service’s intrastate and interstate elements and if federal regulation is necessary to satisfy federal objectives. The FCC’s decision in favor of Vonage flowed from its agreement with this second argument.
Vonage left nothing to chance. The company also filed suit in federal court to block the PUC’s cease-and-desist order. The court found Vonage to be an “information services” provider as opposed to a “telecommunications carrier,” and so allowed Vonage to continue providing VoIP. Minnesota appealed the decision to the Eighth Circuit Court. In fact, several entities around the nation sought to reverse the FCC’s decision in various courts, including the Eighth Circuit. All of these cases were consolidated before the Eighth Circuit, which upheld the FCC’s order and threw out Minnesota’s cease-and-desist order.
The Trend Toward Federal Control
The decision in support of Vonage wasn’t the first of its sort. The FCC ruled similarly back in February 2004, in the matter of Free World Dialup. Founder Jeff Pulver described the decision as a “landmark day in the history of communications.”
“By declaring Free World Dialup’s end-to-end IP communications as an unregulated interstate information service,” said Pulver on his blog, “the Federal Communications Commission has set the first critical brick of our broadband future, affirming its commitment to keep the Internet free of unnecessary regulation.” FCC Chairman Michael Powell (Colin Powell’s son) went so far as to portray the Pulver order as the most important in 100 years of regulatory history.
Evolving Law for Evolving Technology
The trend we see should not be confused with finality. Though the Eighth Circuit Court upheld the FCC’s orders to date regarding nomadic VoIP — concluding that the FCC’s order on preemption was not arbitrary or capricious — individual states continue to seek a regulatory role. The decision is fairly narrow, leaving open the question of jurisdiction over fixed (non-nomadic) VoIP services.
Wisdom suggests the FCC will revisit VoIP issues, such as E-911 requirements. The FCC issued a 911 Order in 2005, which required VoIP providers to identify the geographic end points of 911 calls. Yet that same order recognized the impracticality of identifying those end points and the Eighth Court upheld that finding. So, the 911 Order gave VoIP firms a temporary out, only requiring them to register the physical locations where VoIP services are first utilized.
If the FCC eventually finds that this “temporary plan” under the 911 Order fails to meet prescribed safety standards, VoIP providers such as Vonage could be nudged toward the development of a higher technical standard for determining the point of origin of 911 calls.
The VoIP landscape is certain to remain fluid for some time to come. Hopefully, the legal solutions are as practical and innovative as the technical solutions.
Brooks E. Harlow is a partner in the Seattle office of Miller Nash LLP, and focuses his practice on matters relating to telecommunications, electric energy and other utilities. He is a member of the Executive Committee of the Federal Communications Bar Association and speaks frequently around the country on telecommunications and energy topics.
